Antwerp’s Diamond Dominance Being Tested by De Beers Move

Antwerp’s dominance as the world’s
biggest trading hub for rough diamonds is being tested by
strategy changes at some of the largest gem suppliers and
growing competition from rival trading centers.

In the most immediate challenge, De Beers, the biggest
producer by revenue, is moving the sorting and trading of rough
stones to Botswana from London to secure access to the world’s
largest supplier of diamonds by value. The shift, to be
completed next year, is part of the African nation’s efforts to
build its own trading center in the capital of Gaborone and ends
a decades-long De Beers practice of holding sales in the U.K.

“Being close to London will no longer be an advantage to
the Antwerp diamond industry and some players might move to
different locations,” said Jackie Morsel, vice president of
Dali Diamond Co., one of De Beers’ 76 international diamond
customers, known as sight holders.

For more than 40 years, Morsel has made the 200-mile (320
kilometer) trip from Antwerp to buy his supply of rough diamonds
from De Beers in London. This time next year, he will have to
travel more than 5,000 miles to Botswana for his purchases.

While four-fifths of rough diamonds still pass through
Antwerp, the city faces growing competition from the Middle East
and Asia, as well as Africa. Dubai in the United Arab Emirates
and Mumbai, India, in particular are making strides in
developing the gem-trading industries in those cities.

Diamond Exports

Exports of rough diamonds from the United Arab Emirates
increased 17 percent to 47.2 million carats in 2011, compared
with 2007, while Indian exports climbed 21 percent to 37.1
million carats over the same period, according to Kimberley
Process data, which doesn’t capture trading activity within the
nations. Uncut diamond exports from Antwerp fell 25 percent to
107.1 million carats over that time, Antwerp World Diamond
Centre data show.

Antwerp is “less dominant than it used to be because we
have seen the upcoming centers like Dubai and Mumbai,” said
Pierre De Bosscher, chief executive officer of the Antwerp
Diamond Bank, which finances diamond companies. “But there will
always be a place for Antwerp as the leading diamond center.”

Of the 118.5 million carats of uncut diamonds mined and
exported in 2011, 84 percent passed through Antwerp, 40 percent
through the UAE, 39 percent the U.K., 31 percent India and 16
percent Israel, according to the trade group AWDC, citing a
study by the University of Antwerp. Diamonds typically pass
through more than one trading hub.

City’s Standing

“It’s a position that we are really looking to defend,”
said Ari Epstein, chief executive officer of the AWDC, which is
developing a “Diamonds from Antwerp” brand as part of efforts
to reinforce the city’s standing. “I’m looking at challenges
and how to turn these challenges into opportunities.” The
AWDC’s efforts include the start last month of the Antwerp
Diamond Tender Facility, a new service for diamond-mining
companies to sell their stones.

Antwerp benefits from a critical mass of producers, traders
and support industries including diamond-financing, insurance
and security providers. The biggest miners, including De Beers,
Russia’s OAO Alrosa (ALRS), Rio Tinto Group and BHP Billiton Ltd. (BHP), have
facilities in the city. It would “take a while” for other
cities such as Mumbai, Dubai, Tel Aviv and Hong Kong to build
comparable infrastructure, said Daniel Goldberg, managing
director of diamond-trading company IDH Diamonds in Antwerp.

Potential changes at some of the biggest diamond producers
could precipitate switches in strategy similar to that by De
Beers. BHP and Rio are reviewing their diamond businesses, and
there is a plan to sell up to 14 percent of Alrosa in a public
offering.

Economic Slowdown

At the same time, a global economic slowdown is putting
pressure on the industry in general. Prices of uncut diamonds
have fallen for the past two quarters and could show the first
annual decline since 2008 after increasing at least 20 percent
in each of the past three years. Worldwide diamond demand may
rise just 3 percent to 5 percent this year, down from a record
10 percent in 2011, Varda Shine, chief executive officer of De
Beer’s trading arm, said in August.

The De Beers move to Gaborone is part of a 10-year
agreement with Botswana to build the diamond-producing nation
into a trading and manufacturing center, according to De Beers,
which is owned by Anglo American Plc. (AAL) Very little rough trading
currently is done in Botswana.

“It is a threat for Antwerp,” said Anish Aggarwal, a
partner at industry consulting firm Gemdax. “At the same time,
it is an opportunity for Antwerp to reinvent itself and become a
new kind of leader because the industry is changing pretty
rapidly.”

Rough Supply

Dali Diamond, which has bought its stones from De Beers in
London since 1969, will need to send a buyer to Botswana 10
times a year to purchase its rough supply, trips that will take
three days rather than one. From Belgium, Morsel will have to
fly via Frankfurt and Johannesburg unless there are more direct
flights a year from now.

At the same time, India, where costs are lower than in
Europe, now accounts for about 80 percent of diamond polishing,
while Dubai attracts dealers because of its zero percent tax
rate. Rough diamonds can be traded several times before being
cut and polished.

“The shifting of De Beers operations to Botswana will
definitely improve the diamond business in Dubai” said P.N.
Prasad, chief executive at State of India Bank’s Antwerp office.

“If you think in terms of the diamond business, and what
are growth markets, then you have to look much more to the Asian
side of this business and not so much about Belgium,” said Kurt Looyens, regional head of Europe, Middle East and Africa for ABN
Amro’s International Diamond & Jewellery group.

“The biggest threat to Antwerp is Antwerp itself,”
Looyens said. “You have to embrace that change now and you have
to now take it to the next level.”